So who is right? The professionals. If you step back from the day-to-day noise, gold
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is still a long-term bull market. It has been rising in value for the last decade because of a deadly trio of long-term fundamental fractures in the global economy. Until they are fixed — and that is still at least another decade away — gold is still a core part of any portfolio.

Gold is traditionally sold as a bet on rampant inflation. If central bankers are determined to keep printing more and more money, and if bankrupt governments are forced to inflate away their debts, runs the argument, then gold, as the easiest available alternative to cash, should keep on rising in value.

In fact, that argument is looking more threadbare with every month that passes.

The great bull market in gold started in the early 2000s, and came against a backdrop of relatively low inflation. When prices were genuinely running out of control in the 1970s, gold didn’t do very well. Meanwhile, you’ve more chance of finding a job in Athens than you have any evidence for sustained inflation — it just isn’t there.

So the precious metal is not a great hedge against inflation, and there isn’t much of that around anyway to protect yourself against. That may well explain why at least some investors have started heading for the exit.

That would be a mistake. What gold really represents is a bet on economic chaos — and unfortunately there is plenty of that to come. The global economy faces three huge challenges — and each of them, when you look at them closely, are bullish for gold.

Greek unemployment rose to 27% this month, and for workers under the age of 24 it is now up to 60%. The economy is sliding into an abyss. In Spain, youth unemployment is up to 56%, a rate not seen since the days of General Franco, while overall 26% of the work force is out of work.

These are higher rates than the U.S. experience at the peak of the Great Depression (the rate hit 23% in 1932).

Why is that good for gold?

Because it means that central banks around the world will keep up their programs of quantitative easing. The U.S. and parts of Asia may recover some verve but so long as Europe is in crisis, growth will remain pitifully weak. More QE is good for the metal.

Next there is a debt crisis. Whether the levels of debt all developed economies have built up will stop them from growing is still a controversial issue. It remains to be decided.

What is certainly true is that governments and consumers everywhere have taken on far more than they can afford. Countries such as Japan and the U.K. have total debts of more than 500% of gross domestic product. It will take years to bring that down — and may prove impossible.

Why’s that good for gold?

Because it means central banks can’t put up interest rates. Interest rates were slashed close to zero as an emergency measure, but they are now stuck there. It is impossible to put them up without bankrupting home-owners and the government. It isn’t going to happen — at least not for several more years.

Gold is an alternative to cash in the bank. When that paid 5% or 6% a year interest, a lump of metal that earned nothing wasn’t very attractive. But since the cash earns you nothing as well, you might as well have the lump of metal.

Finally, the dollar
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is in long-term decline as the world’s reserve currency.

None of that changes the fact that the dollar can no longer support the weight put upon it. The rest of the world has grown far richer, and the U.S. is not the dominant economy it once was — and won’t be again.

The decline of the dollar means central banks will steadily increase their other reserves — of which gold is the most obvious. They less they trust the dollar, the more they will want to hold other assets instead, and there isn’t anywhere else to go. As central banks buy more, the price will rise — and the more they buy, the more private investors will follow them.

At some point, those problems will be fixed.

The euro will be put out of its misery, debt levels will return to manageable levels, and a new currency system will emerge to replace a dollar-based one, just as the dollar replaced sterling a hundred years ago. When that happens, gold will go back to being a sideshow — unless of course the currency system that replaces the dollar is a return to the gold standard.

But that is at least a decade away, and perhaps more.

Until then, and despite market panics, gold remains a bull market. It is bet on a chaotic global economy. And that isn’t about to disappear any time soon.

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